The high cost of higher learning
Not sure you’ll have enough saved up for university? The latest edition of Personal Finance For Canadians For Dummies has some advice
EXCERPTED FROM PERSONAL FINANCE FOR CANADIANS FOR DUMMIES, 5TH ED. COPYRIGHT © 2010 BY JOHN WILEY & SONS CANADA, LTD. EXCERPTED WITH PERMISSION OF THE PUBLISHER.Published: February 07, 2011 9:47 p.m.
Last modified: February 07, 2011 10:10 p.m.
Whether you’re about to begin a regular education investment plan or you’ve already started saving, your emotions may lead you astray. The hype about educational costs may scare you.
However, quality education for your child doesn’t have to — and probably won’t — cost you as much as those projections suggest.
We explain the inner workings of the financial aid system, help you gauge how much money you’ll need, and discuss educational investment options so that you can keep a cool head (and some money in your pocket) when all is said and done.
Strategizing to pay for educational expenses
We don’t have just one solution to paying for your kids’ education, because how you help pay for your child’s university costs depends on your own unique situation.
However, in most cases you may have to borrow some money, even if you have some available cash that can be directed to pay the university bills as you receive them.
By concentrating on contributing to your RRSP or company pension plan and paying down your mortgage today, you’ll have a number of options when your kids graduate from high school. If you’ve paid down some — or all — of your mortgage, you can borrow against the paid-up value of your home, usually at or near the lowest interest rate.
You’ll already have some strong momentum and compounding going on if you’ve been building up your retirement savings. You’ve also established a savings habit.
When your kids get close to university age, you can divert your RRSP or other retirement plan contributions to help pay their education costs. When they graduate, you can easily resume your contributions.
You can even take advantage of the allowable RRSP contributions you missed out on because you’re allowed to carry forward unused contributions indefinitely. (You’ll find a summary on the income tax return assessment notice you receive every year.)
This will leave you in much better financial shape than if you had forgone contributions to your RRSP or company retirement savings plan when you were younger in order to start an educational savings program.
And, when your kids are ready to go to university, you’ll likely be in your peak earning years, so some extra funds will probably be available.
How much will you need to save?
University or college can cost a lot. The total costs — including tuition, fees, books, supplies, room and board, and transport-ation — vary substantially from school to school.
The total average annual cost is running around $8,000 to $12,000 per year. The more expensive schools can cost up to one-third to half as much more. If you have younger children, you’ll be interested to hear that some estimates put the cost of a four-year degree, including tuition and living costs, at close to $100,000 or more by 2020. Ouch! Is all this expense worth it? Although many critics of higher education claim that the cost shouldn’t be rising faster than inflation and that costs can, and should, be contained, denying the value of going to university is hard. Whether you’re considering a local community college, your nearby university, or a high-end business school, investing in education is usually worth the effort and the cost. Unlike a car, which depreciates in value, an investment in education yields monetary, social, and intellectual profits. An investment in education (even if it means borrowing money) gives you more bang for your buck in the long run.
Universities and colleges are now subject to the same types of competition that companies confront. As a result, many schools are clamping down on rising costs. As with any other purchase, it pays to shop around. You can find good value — schools that offer competitive pricing and provide a quality education. Although you don’t want your child to choose a university simply because it costs the least, you also shouldn’t allow a university choice without any consideration or recognition of cost.
